Storage includes all of your pages, and the image files that are used on your site. It may also include databases and program files for ecommerce sites. It includes email that is stored on the servers, until you download it and it is removed from the server.
A megabyte is a lot of storage. We don't use many graphics here on our site, and they're all optimized; but this whole web site describing our different services is well under 5 MB.